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US money-market funds raise fees after years of cutting them

Wed, Aug 26, 2015 - 7:17 AM

In recent months, top money-market fund sponsors including No. 1 Fidelity Investments, Federated Investors Inc and Charles Schwab Corp, have been charging higher fees as they recognise slightly better yields on the securities they buy for their funds.

PHOTO: BLOOMBERG

[BOSTON] US money-market funds, which have lost billions of dollars in revenue since the height of the financial crisis, are raising fees after years of cutting them, according to industry executives and analysts.

The US$2.7 trillion industry has lost some US$30 billion in revenue since 2009, according to the Investment Company Institute. Money funds reduced fees to ensure that investors did not actually lose money in an era of rock-bottom interest rates.

But in recent months, top money-market fund sponsors including No. 1 Fidelity Investments, Federated Investors Inc and Charles Schwab Corp, have been charging higher fees as they recognise slightly better yields on the securities they buy for their funds.

"Fund companies see the light at the end of the tunnel,"said Peter Crane, president of money fund research firm Crane Data LLC.

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With expectations that the US Federal Reserve will raise interest rates, yields on the securities that money-market funds purchase, such as short-term corporate debt and bank certificates of deposit, have risen slightly.

To be sure, no major money-fund repricing is expected until the Fed actually makes a move. And there is no guarantee a rate hike will happen this year, especially if China's globe-rattling stock market correction dampens the outlook for US economic growth.

The average expense ratio on all money-market funds was 0.13 per cent in the second quarter, compared with an all-time low of 0.11 per cent recorded in the three previous quarters, according to iMoneyNet Inc, a money fund research firm in Westborough, Massachusetts.

That uptick in charged expenses continued into August, according to senior executives at two large money-fund sponsors. They declined to be named because they were not authorised to speak about fee trends.

Analysts at Jefferies recently raised their outlook for Federated Investors, the No. 4 money-fund sponsor with US$206 billion in assets, because of an expected reduction in waived expenses.

In recent weeks, executives at Northern Trust Corp, T. Rowe Price Group Inc and Charles Schwab also have discussed rising fee trends during conference calls with analysts and investors.

Meanwhile, a number of smaller money-market sponsors have been consolidated or they have liquidated fund assets amid low fees and more regulation. Profit margins have been crushed, according to Crane.

At the end of July, there were 75 money-market fund complexes that reported to iMoneyNet. That is down from 83 in the year-ago period, said Mike Krasner, managing editor of iMoneyNet Inc.